Feds Ask Solicitor General to Review NJ’s Plan to Subsidize Power Plants

Supreme Court request is unexpected; NJ proposal has been blocked at every turn by state and federal authorities

The state’s effort to spur development of new power plants in New Jersey may not be dead yet, but at best it is probably on life support.

The U.S. Supreme Court this week asked the solicitor general to weigh in on a case in which the state sought to build new power plants with subsidies from utility customers, an action that has been rejected by both federal courts and the Federal Energy Regulatory Commission.

The fact that the government has decided to review the case is a bit of a surprise; the lower court ruled that the New Jersey effort -- and a similar attempt by Maryland -- are preempted by federal law, which gives sole jurisdiction over such matters to FERC.

Given that New Jersey has some of the highest electric rates in the country, the Christie administration, along with the Legislature, passed a law offering subsidies from ratepayers to help build new natural-gas power plants. The rationale behind the proposal is it would help drive down electricity costs for consumers and businesses, even with the subsidies.

The law led to extensive litigation, with opponents winning at each juncture in the courts and before regulatory agencies. The irony is that two of the three developers who were awarded subsidies went ahead with plans to build the units even without the grants.

Three-judge panel rules New Jersey program ventures into territory reserved for federal government

Paul Patterson, an energy analyst with Glenrock Associates in New York City, questioned just how significant the action of the nation’s highest court is. “The competitive markets are providing new generation without subsidies,’’ he said.

Both the state Board of Public Utilities, which developed the program, and the New Jersey attorney general’s office, declined comment on the court’s action.

The law was bitterly opposed by incumbent power generators, who argued it would wreak havoc on a competitive energy market that has been deregulated since 1999. It also threatened to erode their profits by providing power at times of peak demand.

PSEG Power, the Newark-based owner of one of the largest power fleets in the region, also intervened in the case. “Our position is unchanged -- the law is unconstitutional,’’ said Michael Jennings, a spokesman for the company. PSEG Power is a subsidiary of the Public Service Enterprise Group, which also owns Public Service Electric & Gas, the state’s largest utility.

Glen Thomas, president of PJM Providers Group, a coalition of power suppliers, also discounted the importance of the Supreme Court’s action. “I think it is still largely a dead issue,’’ he said.

In previous briefs filed with the courts, the Obama administration basically agreed. “The U.S. District Court’s determination that the New Jersey Act is preempted by the Federal Power Act should be affirmed,’’ the administration said in a brief filed along with FERC.

Environmentalists also opposed the measure, saying subsidies should not be awarded to new fossil-fuel plants that could contribute to global climate change.
They and others complained that the subsidies would put utility customers on the hook for as much as $3 billion over the next 15 years.

“It clearly violates the interstate commerce clause,’’ Jeff Tittel, director of the New Jersey Sierra Club, referring to the New Jersey law. “The Christie administration has to hope the Obama administration weighs in on another giveaway to the natural gas industry.’’

Historically low prices of natural gas, which increasingly is used to power new generating units, have led to lower electricity prices for consumers and businesses, not to mention heating costs during winter months.

With new sources of the cheap fuel being tapped in Pennsylvania and other states, natural gas is making coal-fired plants economically uncompetitive, particularly with tough new environmental mandates directed at them.